How to Budget Your Income to the Very Last Penny
Are you tired of living paycheck to paycheck and looking for tips on how to budget your income? If so, you are in the right place! Anyone who has been working on their budget for awhile has learned that a zero based budget (or in other words, a budget with $0.00 un-budgeted) is one of the best practices that you can do with your own budget!
By taking your budget to where your income is 100% completely accounted for, you make sure that you’re only spending money where you NEED to be instead of wasting it on too many WANTS. If you’ve been having trouble with your budget, a zero based budget is your answer! Let’s look at some ways you can learn how to budget your income to the very last penny!
The first thing to keep in mind is that actually putting a zero-based budget into practice can be hard. Most of us have a tendency to budget for our main bills, budget for a bit of savings, and then count the rest of our income as extra money. Like it or not though, that “extra” money that you aren’t budgeting into categories could eventually cause your budget to totally fail. Learning how to budget to the very last penny while not going without is the key!
How to Budget Your Income
To start, when you sit down at the first of the month to do your zero based budget and write it down, you’ll need to know how much income you have coming into your home for that month. If your income varies each month like ours does, then you want to shoot for the lowest amount you expect to receive. For example if some checks are $700 and some are $1000 for instance, you would budget your necessities on the $700 (rent/mortgage, food, electricity, gas etc).
Then make some “extras” categories of where you will send the extra money if you end up having more than you budgeted for. That way those extra dollars still have a place to go if you get them, but don’t kill your budgeting plans if you don’t get them. As an example, I have entertainment as an “extra” category for if we get a check that’s higher than I expect. If we don’t get those higher checks, we just skip the entertainment that month or just do free family activities, but our regular bills and groceries etc still get paid even with the low checks.
Next, you’ll need to know your expenses for the month. This is a good time to brainstorm EVERYTHING you spend money on every month. The obvious things like food, gas, rent/mortgage, electricity, insurance, other monthly bills, are easy. It’s the extra things like entertainment, clothing, eating out, kids’s needs, last minute birthday invites, anything at all that you spend money on that can add up that you don’t really think about, that can derail a terrific budget plan. I advise going through your last few months of bank statements and see exactly where your money is going so you can plan accordingly. Don’t be tempted not to add something to your budget. Doing that can only lead to bad things financially. It’s better to be prepared then get caught without money for something.
As you start to write your expenses, subtract each one from your total income. Start with your main necessities like your rent or mortgage, your power bill, groceries and any other expenses that you absolutely must have. The rest of your expenses are wants and as such, should be kept until after you are absolutely certain that your needs are taken care of.
You obviously can’t pay for something if you don’t have enough income to pay for it. This is why you list your needs before your wants. After you have your needs budgeted for, you can lay out your wants. Add them to your budget the exact same way you did your needs.
Eventually, one of two things will happen. First, you’ll either run out of available income or you’ll run out of things to budget. Ideally, you want to run out of things to budget with money left over. You’re trying to zero things out, remember? So what do you do when everything is budgeted and there is still income left?
You put all of it…every last penny into savings. If you don’t and you leave that excess money just floating, there is a very good chance that you will end up spending it without even realizing it. That only leads to bad financial issues eventually. Even if it is only $2 or $3.00, you’ll still need to account for it. In other words, you need to take the amount of income you have and account for it all until you have exactly $0.00 unaccounted for.
If you ran out of money before you could list everything, it is time to take a look at lowering your expenses. If you can’t pay them all with the income you have coming in, you simply can’t have them. Money only goes so far and if you have more expenses than money, start brainstorming ways to fix that so you are no longer living paycheck to paycheck. You will love the feeling you get when you get control of your finances instead of them having control over you!
Do you have any tips to add on how to budget your income?
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